BRR - Straight from the source

PRESENTATION BY ARTHUR NAOUMIDIS, MANAGING DIRECTOR OF PRAEMIUM LIMITED (PPS)

“FY08 Annual Results Presentation”

http://www.brr.com.au/event/50444/

FRIDAY, AUGUST 29, 2008 2:00 PM.

            BRR    Today on Boardroom Radio, I’m joined by the Managing Director of Praemium Limited, Mr. Arthur Naoumidis.  Arthur, thanks very much for

10                    joining us today.

            PPS     Hello, James, and thanks for having me, and what I’d like to do is go through our annual results presentation and I’ll start off with just simply summarizing what I’m going to through which is the….talk about this strategic execution for

15                    the year just finished…the summary of our group’s financial position.  I did some delving a little more into the Australian and the United Kingdom operations for the year just ended, and then I’ll finish up with an outlook for the upcoming financial year.

20                    Now Slide 3, in 07/08 in Australia, our key focus is expanding our market share, which I think we find a good job in. We’ve increased our market penetration of the V-Wrap market.  Our footprint in the SMSF market is now nearly 4% of the Australian superannuation market that we believe it makes us the largest administrator of super fund…SMSF super fund in Australia. 

25                    We cemented the delivery of advanced portfolio services into the institutional space as evidenced by UBS and Merrill Lynch Private coming on board to Praemium.  This is over and above the Credit Suisse implementation earlier on. We’ve deployed our p-Desktop product as an additional enhancement to our V-Wrap offering to extend the value-add to our V-Wrap clients.  Now in

30                    terms of Desktop, we’ve decided during the year to take Desktop a bit further and simply adding value to V-Wrap and SMA clients.  The Desktop itself now has additional services, in particular with direct market access and our first client went live with this about 5/6 months ago, which have been Evan & Partners, and now uses our Desktop product tried direct to market.  So,

35                    basically, we’ve expanding product line, now that into more of the broker/equity market, and as you’ll see later on that we’ve consolidated our leading position in the Separately Managed Account market as evidenced by some of the research.

40                    Slide 4, in the UK we’ve established some key partnerships in England, particular with Cofunds, Capita, and most recently Old Broad Street Research.  From a personal perspective, I think we’ve done a very good job and in terms of getting partnerships with very large and influential organizations in the UK market, and I think we’ll see the fruits of that in this

45                    upcoming financial year. We’ve secured regulatory approval for our Smartfund and as evidenced by early this morning, being awarded the authorization for our first commercial perspective. So basically, Smartfund is ready for launch and distribution in the UK.

                        Slide 5, for our group financial results for the year just ended, we had a net loss of $12 million.  I think just taking into account is all of our establishment cost in the UK are expensed, we have no debt. From our operational revenue perspective, revenues increased from the previous financial year  from $4.3

5                      to 4.4 million to $6.8 million roughly.  Our cash at the end of June 30 this year was $13 million. So, we’ve got a grown revenue and secure cash position.

                        Slide 6, now going into a little more granularity of  revenue and cost in our main product line in Australia, you can see that the V-Wrap product from a

10                    stand-alone business perspective is well and truly profitable yielding a EBITDA before corporate costs of just under $2.6 million, and even after corporate costs yielding about ….our profit was ….. or positive EBITDA of $6.3 or $.63 million.  Now the SMA has just started to contribute the financial year just ended, and has a $226,000 which is early days but it’s starting to

15                    show some revenue. Similarly, Desktop has shown its first final revenue.  In the UK, we have a baseline expenditure of $6.7 million with an additional $3.9 yielding a $10 million loss.  One scope of the cost would’ve been allocated.  Now clearly with recent authorization, we’re confident that the UK will start contributing our revenues this financial year.

20

                        Slide 7, going to a little more detail, you can see that from an Australian perspective the V-Wrap product, the EBITDA in the year-ended during 2007 before corporate costs versus the year just ended now has grown 240%.  So we’re very happy with the progress of V-Wrap in Australian market, and

25                    similarly, you can see the SMA starting to show some funds of loss in terms of revenue, and paid off. p-Desktop has shown excess revenue in the financial year to date as well.

                        From a headcount perspective, we’ve had also in the year ended 30th of

30                    June, 2008, total had 53 staff, a 25% increase in the prior year, but what we’re saying is our staff in Australia are starting to plateau and we’re confident we’ll basically keep the staff where it is in the Australian market.

                        The total group in the UK for June 30th 2008 has 22 staff which basically yield

35                    a 75,000 as being the total group for the year.

                        Now on slide 10, going to  little more details comparing now key metrics for each of the product lines. On the V-Wrap side, we’re pleased to show that we’ve had a 52% increase in portfolio numbers. Now the funds under

40                    administration has increased only 21%, but as we all know from our peak in November, this has been a considerable drop in valuation of the equities in the market.  We had a 34% increase in clients, we’ll now have just over 457 w using Praemium or V-Wrap around the country, which we are very happy with.

45

                        Now for the Separately Managed Account program, our funds under administration have grown for just under 202, about 338.  But the key metric here is actually the number of businesses that have subscribed to the SMA and that…when appropriate we believe to start putting assets in.  We’ve had a 153% increase in services who are subscribed to the SMA. Now with regards to the actual assets in the SMA, as we’re all aware is as a whole market has been suffering in a major downturn since November and the anecdotal information we get is that there’s lot of cash that’s not being

5                      invested and we believe will be invested when the market turns.  So we were hopeful of the growth in that business.  p-Desktop, we now have from this time last year where we had no clients, we now have 159 firms who are at the very stages of deploying the product. So every service that Praemium offers is increasing its footprint in the market.

10

                        Slide 11 shows the key operating performance.  Data show that basically our gross margin has increased by more than 100% since the previous financial year to now 43% gross margin per portfolio. So it’s a 127% increase year-on-year.

15

                        Now on slide 12, what I’ve tried to do here is just go back to when we floated  Praemium and compare the product line that existed at that time, which is V-Wrap. So from that time our revenue has increased 140% and the corresponding cost base, if you strip out the expanded market data, and the

20                    reason why I’m suggesting that, you know, from a comparison perspective, we should because the expanded market data is supporting future business not the current operating business.  We have only a 21% increase in underlying cost base.  So basically, the V-Wrap revenues are growing seven times faster than the cost base, and so we believe that the underlying V-Wrap

25                    business is demonstrating the leverage that I think everyone expects to see in the business like Praemium.

                        Slide 13, the highlights of the year clearly, for us, have been a couple of the big institutional sales being UBS and Merrill Lynch Equities which won under

30                    very competitive tendering situations, and then also the first of the new bleachered brokers being Evans & Partners starting up with us and deploying all of our products to the client base, in particular our direct market trading.  So, we keep winning the big ones.

35                    Now slide 14, this is a graph of committed portfolios. The thing that I would like to point out is the consistent growth that we’ve demonstrated, and basically, for the last 3-4 years and we expect to continue demonstrating.  In fact, June and July have been the record months for Praemium, and this is without any institutional files in that period.

40

                        Slide 15, looking forward from a V-Wrap perspective, clearly, we’re working on strategies to increase our market penetration in particular in the self managed super funds base where we believe we have a lot of potential, and our partnership with many organizations in that market and we believe will

45                    help us.  We’re expanding our institutional opportunities.  There are quite a number of opportunities out there in Australian market and we believe that we’re well placed to win several of those. In the next little while we’ll be launching our multi-currency/multi-exchange which will lift the bar for any of our competitors, and as a new initiative as well for a V-Wrap perspective.  We’ve been approached by a number of fund managers and we’re looking at core functionality we need to add to V-Wrap to more fully address that market. 

5                      So, in summary we have a very strong opportunity to grow our market share, and also expand our target markets to include the fund manager market.

                        On the p-Desktop side, the key highlights as are indicated, we launched just over a year ago, but it was in November last year where we found our first

10                    full-service broker which is Evans & Partners. We’re now actively using Desktop for a market data, but also for trading on the Australian stock exchange and we launched that facility formally in May this year.

                        We now have over 159 services, in other words organizations who have

15                    deployed p-Desktop, 27 of which are deploying our streaming data for where we’re getting additional fees and we have our first broker as stated that uses our Desktop for direct market trading.  So, in other words, we’re primed for growth in this year.

20                    So looking ahead, we’re looking at ways to expand the penetration into the broker market and we believe the current focus on cost in the broker market will yield many opportunities for us to deploy our products. We’re expanding our deployment of the trading capability to brokers, but also to other non-broker entities and so we believe that we will extend our opportunities in that

25                    segment. p-Desktop is clearly going to play its part in helping Praemium deploy additional services to the fund manager market. So we believe there’s a range of revenue opportunities available for p-Desktop in this financial year.

                        Now on slide 18, as of June 30, 2008, we had 143 groups… has signed up to

30                    deploy the SMA, which is up considerably from the 57 we had the year before.  We only had $338 million under administration but we believe that’s a very good figure considering the sharp, dark decline in the market from November last year, and we believe that we are primed for growth in the future when the market volatility diminishes.

35

                        Slide 19, the market research undertaken by Investment Trends basically illustrates what we anecdotally believe to be the case, and that the BlackRock/Praemium SMA has been named the top SMA product of the year. So we believe we’re ready well placed for the next few years in the SMA

40                    markets which is illustrated by the next slide. In this case here, the tan field of non-SMA financial planners, we are the second most recognized brand in Australia.  So, Praemium provides the fought-leadership in the in the country by SMAs.

45                    Looking forward, one of the key big milestones of coming up is that in early November, the exclusivity constraint that we have with our contract of BlackRock expires. Basically, our expectation is that post this, that our service will be offered to a smaller number of other large institutions with a large distribution capability and we’ll apply material minimums. So we’re very confident the….our SMA infrastructure will develop very rapidly after the November period expires.  As I think the market announcements have indicated that in a…most other place in the market all deploying SMAs simply because the appetite and demand for SMAs in the financial planning and

5                      community is still growing. So we believe we’re very well positioned to maximize the post-exclusivity opportunities.

                        In the United Kingdom, slide 22, the achievements to date of being… we’ve established our business as indicated in prior presentations, our systems, our

10                    tax changes, we’ve been an operational team. We’ve been running for regulatory approval which we received yesterday.  So basically, we’re ready to go.

                        So slide 23, our revenue model, just to remind people, is primarily based

15                    around the SMA offering that we refer to as Smartfund, and the revenue model there is that we will charge four new funds, 50 basis points entry fee, and 25 basis points ongoing.  In the UK, we are the operator, so legally we are the fund manager.  We are then appointing investment advisers, and in the UK our V-Wrap offering is generally seen as a facilitating service for our

20                    Smartfund and we’ll be charging between £120 per portfolio.  We believe that it’s a very scalable business in the UK as the Australian V-Wrap….the figure shows as well.  A current cost structure between $7-8 million, depending on exchange rates will be indicative of the normal running cost of that business.

25                    Now looking on slide 24 now, the regulatory authorizations that we received over the last year included initially about a year ago, we received the authorization as a fund manager in March. We received the ‘Proof of Concept’ authorization, but the key authorization was received yesterday, the authorization of our first commercial prospectus.  So we are now ready in a

30                    position to launch our fund and start taking money in the UK.  We have as our trustee, the one of the world’s largest banking organization and trustee services, the HSBC, and so we’re ready to launch the world’s first unitised SMA.  We have with us in our partner Old Broad Street Research, a very noble, risk-based, multi-manager fund so we’re very confident of this future.

35

                        Our distribution partnerships as indicated in prior presentations include Cofunds, which is one of the two largest platform providers.

                        Slide 26 now, OBSR, the leading investment research and product analysis

40                    company with a very large and popular brand in the UK will be providing us with the risk profile multi-manager fund, and then Capita, being one of the largest to provide a funded administration services in the UK, who’ll provide us access to institutional distribution.  We believe with these partners we’re very well placed in the UK market and, in fact, I can’t see how we could have

45                    done better with the partners that we have.

                        Finishing up on slide 28, our original partnership with Argenta that’s still in train, we’re just waiting for the results of an internal review between Argenta and Lloyds of London, and we anticipate later this year having more in-depth engagement with Argenta.

                        Now slide 29, the outlook for 2008-2009, clearly as we announced several

5                      weeks ago, we hit our first item list that we’ve raised our prices effective November 1st, and we’re very happy with the response from our clients, and so that’ll add to our already operational revenue.  We are very pleased that the current focus on investment in cost brings a focus on local solutions and I think representative of the fact that we had a very good June/July is that a lot

10                    of financial planning organizations in particular and stock brokers are looking at ways on reducing their costs so they basically coming to have a look at our V-Wrap and Desktop solutions.  Now the other item this coming next year or two is the SMA exclusivity period ending in 8th of November will provide us with what we believe to be significant opportunities to entering to some higher

15                    revenue arrangements, and clearly in the UK, the key item here is the imminent launch of our Smartfund over the next several weeks.  So this will be the pivotal year for Praemium’s business, in fact, this is the year that we’ve been waiting for the last several years we floated, which is primarily to set up the business so that we can start operating and earning money in the UK and

20                    also leveraging from our success in Australia.

                        That’s all and thank you.

INTERVIEW CONCLUDED

Contact brr@brr.com.au for more information

DISCLAIMER: Transcripts made available by Boardroomradio.com is a free service whereby the transcripts are created by one or more third party contractors without any involvement or oversight by Boardroomradio.com or the respective company, firm, partnership or individual that is being transcribed.  Boardroomradio.com and its contractors, client companies, firms, partnerships and guest speakers (paid or otherwise) do not invite reliance upon, nor accept responsibility for, the information they provide. Boardroomradio.com makes every effort to provide a high quality service. However, neither Boardroomradio.com, its transcript providers, nor the providers of any other written or oral data made available on the Boardoomradio.com site (and its partner sites) give any guarantees, undertakings or warranties concerning the accuracy, completeness or up-to-date nature of the information provided. Users should confirm information from another source if it is of sufficient importance for them to do so. Boardroomradio.com, its directors and employees do not accept any liability for the results of any actions taken or not taken on the basis of information in this site, or for any negligent misstatements, errors or omissions.